The IRS has taken a Congressional request (yeah, let's call lit a request) to heart and is suspending tax shelter penalty collection efforts on certain small businesses.
Last month, a bipartisan group of Congressmen wrote to IRS Commissioner Douglas Shulman and asked him to temporarily stop imposing the penalties on small businesses.
These smaller firms, argue the lawmakers, are facing unintentional and excessive penalties for their utilization of some illegal tax shelters.
It's not that the Representatives and Senators want to give the offending companies a free pass. It's just that they believe the automatic penalties, created as part of the American Jobs Creation Act of 2004, are too severe for small firms.
The law, they say, was designed to punish big business.
And the legislators promise to revise the act so that the penalties more appropriate for smaller companies.
Shulman has agreed.
In a letter to the Congressmen, Shulman said through Sept. 30 his department will not initiate any effort to collect the penalties in cases where the annual tax benefit received from the illegal transaction is less than $100,000 for individuals or $200,000 for other taxpayers per year.
Under the existing law, penalties on corporations that exploit illegal tax shelters are automatically assessed and could reach as much as $300,000 a year. The members of Congress were concerned that the penalty was much more than what smaller companies usually gained from using the shelters.
The IRS will, however, continue to investigate the companies who use the shelters, even if it's not trying to get the penalty charges. Shulman told the Congressmen that his examiners have to do their jobs so they can accurately determine the amount of tax benefit; if it falls under the $100,000 or $200,000 amounts, collections will be suspended for the next few months.
"I'm glad the IRS has decided to do what is fair and to allow Congress to correct the unintentional consequences of a law intended to target big corporations," said Rep. John Lewis (D-Ga.), one of the men who asked for the IRS suspension and Chairman of the House Ways and Means Oversight Subcommittee.
Now the tax shelter penalty ball is back in Congress' court. During these months that the IRS is suspending collection efforts, lawmakers need to get busy and get the law changed.